U.K. Set for Solid Third Quarter Even as Services Growth Ebbs

(Bloomberg) -- Growth in the U.K.’s dominant service sector was strong enough to keep the economy on track for a “robust” expansion in the third quarter.

IHS Markit said its Purchasing Managers Index for the industry slipped to 53.9 in September, down from 54.3 the previous month and just below economists’ forecasts for a reading of 54. Job creation climbed to a seven-month high, though optimism remained subdued in the face of political uncertainty.

Taken with previous surveys for the manufacturing and construction sectors, the performance was enough to leave the U.K. on course for growth of just under 0.4 percent in the third quarter, Markit said.

That’s the same pace as the three months through June and around the level that Bank of England policy makers estimate is the economy’s potential. The report also showed a sharp in input costs, which may help back up the arguments of BOE officials who say that limited and gradual interest rate increases are needed to control inflation.

Still, Brexit remains a question mark, with the survey showing that business confidence was below average. While some companies said there would be a boost to activity from pent-up demand once negotiations have been concluded, Brexit and trade tensions are, for now, the main constraints on growth.

“Brexit worries continue to dominate the outlook,” said Chris Williamson, chief business economist at IHS Markit. That’s “keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown.”

--With assistance from Harumi Ichikura.

To contact the reporters on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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